Finding the Freedom Chips

It's all about paying yourself first

Posted haphazardly by Matt on Saturday, July 01, 2017

Posted haphazardly by Matt on Saturday, July 01, 2017

You wouldn't be the first person to wonder about our idea of retiring at 45 (a mere 7.5 years away at the time of this article). Moreover, we plan to buy a sailboat and set out on an extended cruise around the world. Setting aside for a moment the issues of becoming competent sailors and foregoing the relative safety and comfort of life as a lubber and you've still got a pretty big hurdle to get over: money.

Indeed, it's going to take plenty of "freedom chips" to make this possible and we all know that a dollar doesn't go as far these days. Waitaminute, I'm pretty sure I've heard my grandfather use that expression. So how does a 30-something couple accomplish this? After all, we don't have a million dollars to our name.

Tammy and I have been extremely fortunate to have had good jobs but we've never been particularly high-income earners. I began working in entry-level IT as early as 2000 and soon after found my way into software development. It was a natural progression for me as I'd been a programmer-hobbyist from a young age. Nevertheless, I did not pursue post-secondary education and so my hard-won employment never garnered the same returns I might have realized had I graduated from college. Tammy wasn't able to work in Canada for nearly a year after we were married (thank you immigration) and though she looked for work it wasn't until she went back to school to obtain her bachelor of education that she found something that suited her. She graduated in 2009 and found full-time employment as a teacher in Alberta. We've had the usual expenses since we were married: repaying Tammy's parents for a portion of her undergraduate; university course upgrades and a degree for Tammy in 2007 through 2009; relocation to Northern Alberta later that year; an attempted business startup in 2010-2012 that lost us a chunk of money; my education at fire college when I began to transition from programmer to firefighter and of course the lost income from my end during the nearly year-long career switch until I was hired by a metropolitan fire department in mid-2013. During the past twelve years we have moved four times, bought and sold a house, rented a second place while we lived apart for 2.5 years (a bit of a long story so we'll skip it for now) and purchased vehicles.

So, with all that in mind, just how are we going to manage to cut lose in 7.5 years?!

The answer lies in these four vital personal financial concepts:

Spend less than you take home

Pay yourself first

Pay off debts ASAP

Invest wisely

Although we've been good with our finances we've never been misers and we've even made a few unwise choices along the way. But through it all we've held true to paying ourselves first which means that we have treated savings as an expense and made sure that it has been the first thing to be paid when it comes time to divvy up the dough. To ensure that we are able to pay ourselves, we've spent less than we've earned and eschewed expenses like satellite TV, eating out regularly and expensive trips (okay, there was that one trip to Australia, but hey, are you really going to stay home all of the time?). We've also set and followed a budget and since 2012, tracked our spending like hawks. We've used some simple accounting software and spreadsheets to do this and it has been extremely useful to plan where we will spend our money and ensure that we follow our plan. Mind you, it helps to have a goal you're trying to achieve because saving in a vacuum doesn't work for most of us. We believe that it's smart to do with a little less now to be able to have a bit more down the road.

If you haven't read "The Wealthy Barber" or "The Wealthy Barber Returns" by David Chilton then I seriously suggest that you do so. David covers a wealth of financial management concerns and the psychology of money in plain language in both of his very short books. Don't bother reading both though: the second book is basically just the first book plus some updates and revisions. We are firm believers in Mr. Chilton's work and recommend it to anyone who is looking to expand their money-management savvy.

When it comes to investment we have followed the Canadian Couch Potato set it & forget it approach to low-cost index investing. It has done well for us so far and we are happy with the smaller and (in our opinion) perhaps less risky returns. As you might imagine, we're not the type to gamble or hope for the big win that never comes for the vast majority of us.

Retiring early will mean having to make do with less. Sure, we could both stick it out with our jobs until we're 60 and retire with more but, as I mentioned in our previous post, that would mean trading more of our precious time for a just a little bit more moolah. I'd rather have the experiences, thank you. Having less (but still having "enough" - an important distinction) means that we can keep our lives simpler so we can focus on the things that really matter. Having more toys doesn't necessarily enrich our lives and we are truly unable to take that stuff with us beyond this mortal coil. Pharaohs of Egypt tried taking their stuff with them and look how that turned out!

If you need to see some details to get a better picture of how we're managing to do all this, I'd be happy to provide some but all of the important points are listed above. In case they didn't stand out I'm going to repeat them here:

Spend less than you take home

Pay yourself first

Pay off debts ASAP

Invest wisely

That's it. Now go and find the freedom chips to make your dreams possible!